Sunday, March 02, 2008

Libertarian Party Policy #1

Ladies and gentlemen, should you be up and around at this late hour on a Sunday night, I would like to point out that the UK Libertarian Party's policy will be appearing here at one minute past midnight. You'll like it, we hope...

The UK Libertarian Party has started the new year with a call to scrap personal income tax.

Party Leader, Patrick Vessey, said,

"Income Tax raised £143 billion in 2006/07, about one quarter of the £534 billion spent by government last year.

"But savings on unnecessary spending could easily be found: for example, current annual spending on Britain's hundreds of unaccountable QUANGOs—including such patent time-wasters as the British Potato Council, the Milk Development Council and the Wine Standards Board—is running at around £175 billion.

"The Libertarian Party believes that the tax burden should be substantially reduced, and that those taxes that remain should be levied on spending, not on income. This policy will reward those—especially the poorest—who spend within their means and who save for their future."

The Party's Director of Communications, Chris Mounsey, added,

"This may seem like pie-in-the-sky but, in 2001/02, the government spent £378 billion. Were we to return to those spending levels, we could abolish personal income tax and still have £13 billion left over—sufficient also to abolish, at current revenue levels, Inheritance Tax, Capital Gains Tax, and duty on beer and wine.

"The people of Britain are beginning to understand that simply throwing money at public services doesn't work. The Libertarian Party is dedicated to allowing every person in this country to choose how their hard-earned money is spent – and the best way in which to do that is not to steal it from them in the first place."

The Libertarian Party's pledge to scrap personal income tax is the first policy to emerge from the new party's discussions, and will form part of a radical manifesto to be released later in the year.

Notes for editors

The Libertarian Party was founded on 21 November 2007 and officially launched on 1 January 2008. The party has to date concentrated on building support amongst UK political bloggers; this is the party's first foray into the wider world. The party's website can be found here, and fuller details of this proposal are available here.

Libertarianism is a political philosophy based on support for individual liberty.

Libertarianism is a broad church, but the UK Libertarian Party is broadly minarchist in outlook.

Income Tax was first introduced in 1799, at a starting rate of less than 1%, by William Pitt the Younger, in order to buy weapons and materiel to fight the Napoleonic Wars. A brief history of the tax can be found at HMRC.

There have already been murmurings that this policy might lead to us being painted as crazy people but the point that we are trying to make is that people should be thinking radically. And nor should this policy be thought of in isolation: let's face it, we are going to have a long time to plan and fine tune our policies...!

Income Tax seems like a fixture—something that has been around since the dawn of time—but the truth is that it has not. It was introduced in order to raise money to fight a major war and even then was only levied on the very rich (it started at 0.83% on those earning over £60 a year: a considerable sum in 1799).

Over the decades, governments have forced more and more people into the embrace of Income Tax, mainly by not raising the Personal Tax Allowance. Even in the 1950s, the average worker didn't pay Income Tax; it is only as the state's ambitions have got bigger and more all-embracing that Income Tax has come to affect nearly 100% of the working population.

And you want to reward those who work, and encourage others to do so? Fine: don't tax people for doing what you advocate (unless, of course, you are a big state socialist and the only interest that you have in getting people into work is so that you can tax their earnings).

Think about it: why the hell should the state intrude on your privacy in this way? Why should you have to tell the state how much you earn? And why, in the name of all that's unholy, are we taxing those on the minimum wage? In fact, why the hell are we still taxing those who work part-time on the minimum wage?*

According to the aphorism, there are only two certainties in life: death and taxes. OK, there's not a lot we can do about the former, but let's think about how we can substantially reduce the latter.

* Standard working week is 40 hours, and so I am taking part-time as 20 hours a week. The minimum wage is £5.52 an hour. 52 x (20 x 5.52) = £5,740.80, which is above the Personal Tax Allowance of about £5,350. OK, the tax is a negligible amount but, then, it's a derisory income. And think how many resources are consumed in order to collect the £78 or so income tax on that wage. Do you reckon that it is higher than the tax collected?

I am so glad is it because some of the leaders of ukip are a bit sleazy. I worked for ukip for a while and I had to speak nigel farage on the phone he just shouts I don't like him I think he has ruined the party. Also some of the other members had bad reputations.

Although there were some better members campbell bannerman was alright and dr whittaker is a good asset.

Did you leave because of Farage and the sleaze. I heard rumors that he was sticky fingered and that campbell bannerman tried to grass him up.

Wouldn't a purchase tax/VAT be more regressive than a high personal tax allowance coupled with a flat tax? The poor would have no option other than to pay.

The savings outlined are, I would have thought, highly achievable, with no cuts in public services.

I would prefer a reduction in the number of taxes levied, along with a complete simplification of the tax system. That would still probably leave room for substantial income tax cuts.

The one tax that would probably be untouchable - electorally speaking - would be corporation tax. Trying to explain to people that they are the ones paying the tax in higher prices, etc. , would be drowned out by the screams of slathering socialists baying about fat cats.

It's a pity that the LP don't understand economics either and go for headline grabbing gimmicks.

1) VAT and Employer's National Insurance are far worse taxes than income tax - get rid of them first (about £120 bn).

2) Employee's National Insurance and higher rate tax should be next (£60 bn, maybe).

But wait - what happens if you cut taxes too quickly , then net incomes increase but the economy takes a while to grow so there is nothing to spend the money on except what is already there, so house prices and rents escalate!

So taxpayers who are homeowners get a double benefit, but taxpayers who are still renting save a bit of tax, but this is more or less offset by higher rents and the fact that they have to save up an even bigger deposit.

I can't tax rabid tax cutters seriously who don't seriously consider having land value tax to prevent this happen and to continually divert money away from unrproductive assets (i.e. land) into productive assets or spending (just about everything else).

Mark Wadsworth makes some interesting points, and certainly the policy needs to be implemented in such a way that it protects and saves a financial burden for all parts of the community.

But ultimately, the policy works because it is so bold, and hopefully should challenge a lot of the preconceptions that people feel about income tax. It is seldom questioned exactly why income tax exists. And once you start people thinking that income tax is not a given, then they may start looking critically at other areas of public life and questioning how they could be changed.

The policy is excellent, no doubt. I think you might need to tone down some of the wording, as banding around terms such " ... steal it from them in the first place..." and "patent time-wasters " might mean that people find it difficult to take you seriously.

It's all very well being radical, but you also need to be "reasoned".

Good luck and God speed. If you contest the next election down my way, there is a very good chance you'd have my vote.

If you had taken the time to look at our manifesto, you would have seen that we shall indeed be examining the feasibility of LVT.

As a general point on the order in which to cut taxes. I'm sorry, but you are thinking like a typical statist, by simply looking at the macro-economic impact. Libertarians consider the individual first and foremost -- we are the ultimate humanists. Personal Income Tax is just that -- personal. We all pay it, whether we are employees, or the owners of companies. It hits us all. Removing it will have a similarly global benefit, to employees, and to the owners and shareholders of companies.

As you hadn't noted our proposal to look at LVT, I suspect that you also failed to notice our proposals on Corporation Tax?

I'd be happy to debate our manifesto with you -- after you've actually read it.

Forgive my ignorance, (I was third in my class for math but there were only three in the class) but isn't that a 100% increase? How has this gone un-discussed,under the radar? Should it not have been banner headlines,was the nation in a deep coma when this was announced,is Brown a master hypnotist whose droning puts us under a hypnotic thrall?

Patrick, yes I am thinking very much of the macro-economic impact, if that makes me 'statist' then so be it. Perhaps unwittingly, your policy would particularly favour rich landlords without mortgages, as opposed to the productive economy...

In the service sector (which is the largest part of our productive economy), if you keep VAT and National Insurance and scrap income tax, the entrepreneur and his employees, taken together, would keep £67 for every £100 gross turnover (as opposed to £58 under current system), so a 15% improvement, yes. But a rise in net incomes merely feeds through into higher rents and house prices.

The rich landlord on the other hand, would see his gross rents increase from £100 to (say) £115, and instead of paying £40 income tax, he pays nil%, so his net income goes up from £60 to £115, i.e. nearly doubled.

If The Libertarian Party wants to be the party-for-wealthy- landowners rather than the party-for-the-productive-economy, then fine, but don't expect me to join any time soon!

Mark, this is correct insofar as it goes, but doesn’t tell us much. But you really need to spend a little more time thinking about ramifications if you want to understand the effects properly. It’s no good looking only at the first level of knock-on effects without considering the others.

Cutting income tax effects a rise in net incomes. Some of this additional net income may well be spent on goods with price-inelastic demand schedules, viz rental property. While the supply side responds to this ‘demand shock’, the higher rents which will result from the new equilibrium will indeed represent a transfer of income from renters to landlords. But the following quote is likely to be grossly misrepresentative of the reality.

“But a rise in net incomes merely feeds through into higher rents and house prices.”

This could only be true if both of the following conditions were met: 1) people desired to spend all additional net income on property (every last penny and wanted for nothing else), and 2) the supply of property is completely fixed. Obviously, both are untrue. Property does not account for every desire that people might want to satisfy with greater income and property can be developed (and developments speeded up) if a change in prices makes it profitable to do so.

So the truth is that some (not all, some) of the benefit to renters would be cancelled out by the dynamic effect it would have on rents. But the flip side is that those who are landlords will benefit even more than renters as not only will their net income rise, but their gross income from rent will also rise. Also, higher rents mean greater incentive to build more property, which –when built- push the economic balance back away from landlord’s favour towards the renter’s.

“what happens if you cut taxes too quickly, then net incomes increase but the economy takes a while to grow so there is nothing to spend the money on except what is already there, so house prices and rents escalate”

Again – you need to think about the flipside. I haven’t read the Libertarian manifesto so I’m going to have to be a bit vague here. Assuming the tax cuts will correspond with spending cuts then the desire to replace services which were previously financed by the government with ones people will pay for themselves will reduce the net demand shock to the rest of the economy. Simply put, if –say- the NHS were to be abolished along with a big tax cut, then part of that tax cut would be spent by people on private health insurance (or direct payments). That would reduce the effect of the tax cut as you would have less additional money to spend on other things.

Rory, they said they were going to cut wasted expenditure first (I couldn't agree more).

So hopefully, all those millions of unproductive civil servants will get jobs working for businesses that produce something useful or valuable, so overall the economy would grow, which primarily has the effect on prices of scarce resources (land with planning permission) that I mentioned.

Yes of course there is more to it than this, but look at Barber's dash for growth, the Lawson boom and the Brown Bubble - house prices are quick to inflate once they get the chance and then we have asset price/credit bubble and when that *pops*, we are all further back than when we started.

I have now read the whole manifesto and thought it quite good. No very good actually. Except from a couple of things which made me gulp.

The first is your position on what are currently illegal drugs. Whilst it is completely non-libertarian to suggest that people shouldnb't be able to do with their bodies what they will, legalising drugs and therfore making them freely available is, IMO, unthinkable. There are almost no positives to drug use, they often do untold harm to those who use them and those who as a result become addicted. And those who use them often resort to crime to finance it. It is also a well known casue of mental illness. Now I know you will argue that it being illegal has not stopped people using drugs, effectively making it freely available will almost certainly see more people using them and becoming addicted to them. A much more sensible (again IMO) policy would be to make/keep the imprt, production and sale of drugs illegal whilst keeping taking drugs illegal.

Secondly, whilst I entirely concur about the right of a person to protect their property, allowing firearms to be freely obtainable is utter madness. As you say, making them illegal has not reduced gun crime, but making them freely available is likely to push us in the direction of the US of A whewre gunb crime/harm is much much higher. You don't want that do you? Also, no poltical party that wants to be taken seriously should make the argument that hand guns should be leaglised to benefit our Olympics team! This is adolescent nonsense!

I think you'd get agreement from a good proportion of the population on a lot of your polcies, but things as I have described above will put people off, think that you are a bunch of lunatics!

Take the feedback you get and re-think your policies where the feedback is constructive. I don't really understand Mark Wadsworth's economics any more than I do yours, but the things he says seem to be fairly sensible.

The general public really wouldn't mind politicians putting their hands up, admitting they were wrong and reacting appropriately. We are fed up of them banging on even though we know, they know and they know we know that thhey are wrong. Don't keep your manifesto as a final draft and I'm sure you'll have something to offer.

"legalising drugs and therfore making them freely available is, IMO, unthinkable. There are almost no positives to drug use,"

No positives to drug use? How about getting high?! So high that you're prepared to fork out lots of your hard-earned cash and risk criminality for it.

Isn't the freedom to persue happiness worth something. After all, I don't think they're saying you must take drugs if you personally don't see any positives, merely that adults are grown up enough to decide that for themselves.

"you say, making them illegal has not reduced gun crime, but making them freely available is likely to push us in the direction of the US of A whewre gunb crime/harm is much much higher."

I think that is unlikely to happen, you should base your knowledge of 'gun control' politics on more than Michael Moore documentaries.

Analysis of the crime statistics* provided by such bodies as the FBI has demonstrated that the rate of violent crime is at present higher in states with restrictive gun controls. In addition crime rates have in general fallen since around the 1990 while at the same time as the number of legally held firearms has increased. The proportion of the American population that is incarcerrated has also increased, which is also very significant.You should also note that the majority of murders in America are not committed by looney loners roving in schools, universities, and shopping centres, such people are anomalies. If you want a more typical image of an American murderer think of a young black or 'hispanic' man with bad tattoos and poor dress sense whose violent acts are related to gang activity, the victim is often similar.

* American crime statistics are a good deal more comprehensive and reliable than those currently provided by our government.

I think you would be better off trying to change the views held in current political parties as your views against legalising drugs and ownership of firearms is contrary to libertarianism.

Not just slightly either, your views aren't against some obscure aspect of the economic side of things of which I myself am not sure about (I'm new to politics, and although I understand principles well the details still confuse the hell out of me). They're contrary to the heart and soul of libertarianism and to make one exception to, drugs for example, would completely destroy the purity and principled consistancy that libertarianism at least has to offer.

We ban drugs, the drug addict says he dont like prostitution, so we ban that, the hooker lover then says I don't like guns, so we ban that, the gun lover says he don't like gambling, so we ban that, the gambler.... Get the point?

By all means ask questions regarding the philosophy of libertarianism, I'm sure all would welcome the opportunity to try and convince you, but, I'm not a member(yet) or founder of the party so my opinion really carries no weight as to what the party does, but, if you think your going to change policy posistions that you personally dislike (as is the case with drugs)I think you will find yourself sorely mistaken. For the simple fact that if the founders of the party took your advice regarding drugs and firearms, though they may pretend to in name only, they simply would not be libertarians.